2008 (2) TMI 37 - HC - Service Tax

Services of consignment agents - held that services of commission agent are included in the definition of business auxiliary service from 1-7-2003 and mere procuring or having orders for the principal by an agent on payment of commission basis would not amount to providing services as clearing and forwarding agent - engage in any of the activities connected with clearing and forwarding operations directly or indirectly - no substantial question of law arises - appeal is dismissed

Issues Involved:
1. Classification of services provided by the respondent as "Clearing and Forwarding Agent Service".
2. Imposition of penalty when service tax is deposited before the issuance of the show cause notice.

Issue-wise Detailed Analysis:

1. Classification of Services:
The primary issue is whether the services provided by the respondent to M/s. IPCL qualify as "Clearing and Forwarding Agent Service" under Section 65 of the Finance Act, 1994. The respondent, acting as a consignment agent, did not register with the Department or pay the required service tax, believing that M/s. IPCL was responsible for the tax payment.

The Assistant Commissioner confirmed the demand for service tax and imposed penalties. However, the respondent argued that the services rendered as a commission agent were not liable for service tax under the category of "Clearing and Forwarding Agent". The Commissioner (Appeals) upheld the service tax demand for commissions received as a consignment agent but not for those received as a commission agent, reducing the penalties accordingly.

The Tribunal, referencing the case of M/s. Raja Rajeshwari Intl. Polymers Pvt. Ltd. v. CCE, Bangalore-III, concluded that the services provided by the respondent did not fall under "Clearing and Forwarding Agent Service" as the goods were not handled directly or indirectly by the respondent. This decision was supported by the Larger Bench of the Tribunal in Larsen & Toubro Ltd. v. Commissioner of Central Excise, Chennai, which clarified that mere procurement of orders does not constitute "Clearing and Forwarding Agent" services.

2. Imposition of Penalty:
The second issue concerns the imposition of penalties when the service tax is deposited before the issuance of the show cause notice. The respondent deposited the service tax amount before the notice was issued, arguing that this act demonstrated their bona fide belief and lack of mala fide intention.

The Tribunal set aside the penalties, citing precedents where penalties were not imposed if the tax was paid prior to the show cause notice. The respondent referenced several judgments supporting this position, including E.I.D. Parry (I) Ltd. v. CCE, Mumbai, and Rashtriya Ispat Nigam Ltd. v. CCE, Visakhapatnam.

The High Court upheld the Tribunal's decision, noting that the penalty imposition requires mens rea, which was absent in this case. The court referenced the Supreme Court's decision in Hindustan Steel Ltd. v. The State of Orissa, which emphasized that penalties should not be imposed for mere technical or venial breaches.

Conclusion:
The High Court dismissed the appeal, affirming that:
1. The services rendered by the respondent as a commission agent do not fall under "Clearing and Forwarding Agent Service".
2. Penalties are not warranted when the service tax is deposited before the issuance of the show cause notice, especially in the absence of mala fide intention.

The court found no substantial question of law for determination, thereby upholding the Tribunal's findings and dismissing the appeal.

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